What should I do with my savings if I have maxed my RRSP and TFSA?

Congrats on your financial success, this is a great problem to have and our Financial Planner & Cashflow Specialist, Lisa Elle shares her thoughts:

First of all, congratulations on maxing out your TFSA and RRSPs! Did you know that only 5-6% of Canadians have their RRSPs maxed out and 7-8% maxed out their TFSAs? So pat yourself on the back for a job well done in savings and investing and paying yourself first!

So where do you put your money once you have maxed out your registered accounts?

You can put your money into the same investments that you put your TFSA or RRSPs into, such as GICs, Mutual Funds, Stocks, Bonds, Real Estate Investment Trusts, Precious Metals (such as Gold or Silver) and the list can go on.

If you are saving for something specific (like a car, trip, new home down payment) make sure that your investment risk level and strategy matches the time horizon. If your time horizon is less than 2 years, I would recommend a high interest savings account. There are some great banks that offer up to 2% interest for these accounts. This way you have easy access to your money at a better rate than the big banks!

These accounts that you set up are called “Non-Registered Accounts” or we can also call them OPEN money, meaning there is no restriction on how the money can be moved around and no need for reporting, like the reporting that needs to happen with CRA for RRSPs and TFSAs.

Also, this money is put into these accounts with after-tax dollars, that means that you will have to keep track of the amount invested and the growth (capital gain) or loss (capital loss) that is connected with these investments. This is sometimes given to you on organized statements from your bank or investment firm, however more than not, you have to keep track of how much you bought and sold for. This reporting is not done for you and is based on the honour system for the most part. Although with technology, this could change.

Plus, once more room is created in your RRSP or TFSA account in a new calendar year, then it’s easy to keep those accounts maxed out by transferring your non-registered assets into these accounts, if this is tax beneficial to you. Again, on that note, to see if it is of tax benefit to you

How do I choose a financial planner who is reputable and has my best interests at heart? Fee based or commission?

The first thing you should be aware of is that there are tens of billions of dollars in profit made in financial services in Canada. Not only is it profitable from a corporate standpoint, but those attached to it – bankers, advisors, agents, counsellors and professionals of all kinds – are also able to earn significant earnings from the industry.

I mention this because where there is profit, there is bias. There may be aggressive sales people. There may be win-lose conversations happening. Knowing how someone is paid can either remove this bias or at least keep you fully aware of when your best interests may not be aligned with the interests of the professional you are working with.

Now, think about what your needs are. Are you struggling with debt and would benefit from a cash flow expert? Are you looking to invest and in need of investing advice? Are you unsure what to do with an inheritance? Do you know what you want to do, but are just unsure how to execute the financial plan?

Once your needs are determined, the goal should be to seek an experience and qualified professional who can assist you. While I have my own opinion on this, if you want to ensure that your advisor’s interests are aligned with yours, make sure that they are a flat-fee (or fee-only) planner. And the Certified Financial Planner® designation – the gold standard in the industry – will bring additional confidence to your process.

In my experience, process is far more important than product. There are thousands of ‘financial products’ and while implementation is an important part of a comprehensive financial plan, I believe that the education process is critical to helping a client achieve their financial goals. Being aware of the principles that will lead to an empowered financial life is far more important than the blind purchase of a mutual fund.

Feedback from my clients these past 6 years as a full-time Money Coach has confirmed my belief that the best way for someone to improve their financial position (regardless of the tax bracket they might be in, or the challenges they may face) is to improve their own financial literacy. Trusting someone else with your financial future – who might profit from the decisions made – is dangerous. Remember, what is better for the seller is often worse for the buyer. And vice versa.

So to summarize: consider what your needs are, what experience, expertise and qualifications you are looking for in a professional, interview a few different professionals to determine fit and comfort, know how someone is paid and do your best to minimize bias in the process, and consider the benefits of a fee-only financial planner.

I live with my common-law spouse, but I’m not in his Will, if he dies am I entitled to our home?

So this is a big one – and there isn’t a clear-cut answer. The first question I have is whether you are on title to the home, and if so, how?

If you and your common-law spouse are both on title to the home, we would need to look at how title was registered. There are different ways that couples (or anyone that owns property jointly) can hold title. Typically, property is held either as joint tenants or as tenants in common.

If you and your common-law spouse own the house together as joint tenants, then title automatically passes between the two of you on the death of the first. So if you were to die first, your common-law spouse would own 100% of the home. If your common-law spouse were to die first, you would own 100% of the home.

If you own the home as tenants in common, things are a little bit trickier. Owning a home as tenants in common means that you each own a percentage of the home. So depending on how title was registered, you may own 10% or 50% or 99% of the home (or anything in between). In that case, if your common-law spouse were to die before you, your share of the home would be yours. That’s the good news. The bad news is that his/her share of the home would transfer to whomever he/she has chosen in their Will.

This is obviously not an ideal situation, as you may end up sharing the ownership of your home with someone you have no intention of living with! Typically, if that happens the property would be sold and you would each walk away with the percentage of the sale proceeds that you owned.

If you move in with a common-law spouse and are not on title to the home, things are far more complex. In that case, you should speak directly with a lawyer about how best to protect yourself in case something should happen to your common-law spouse.

Moving in with someone brings a lot of joy as well as many challenges. Every situation is unique, and in each case I would advise speaking with a real estate lawyer and an estates lawyer about the implications of your decisions.

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Should I pay off my debt or invest?

Wondering whether to pay off debt or invest is a common question and a great one!

I wish I had a one size fits all answer for you. Pay off debt or invest should really be evaluated on a case by case basis, and really depends on your objectives. Generally, my thoughts are that if you can pay off your debt in a few months to a year, you should focus on it primarily until your debt is paid off. This is especially important if you are paying high interest rates.

If you have a large amount of debt and it will take you a number of years to pay it off, I would suggest creating a small emergency fund in your savings account. The purpose of an emergency fund is to have funds available to you should unexpected costs arise. This would help to avoid further debt accumulation, which may come with an even higher interest rate.

If it will take you a number of years to pay off your debt, you may not want to wait that long to start investing. If you do, you will be giving up the advantage of time to grow your investments (think compound interest). Therefore, I would recommend starting with small contributions to an investment portfolio.

Don’t forget to take into consideration the interest you are paying on your debt and compare it to the kinds of returns you’ll be able to make on your investments. To me it doesn’t make sense to pay high interest on debt when you only make a few percent return on your investments. Pay off debt or invest is something you should think about from a few angles before you decide your approach.

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Should I take advantage of my employer matching my investment contribution?

Taking advantage of employer matching is like free money!

As long as you don’t have to go into debt to cover your monthly expenses, my opinion is YES you should! When you have an employer matching program it is like having 100% guaranteed return on your investment, what could be better than that?!?

I’m continuously boggled by the staggering high number of employees who don’t take advantage of free money. I know sometimes the enrolment process for these programs can be a little cumbersome, but really? I would fill out piles of paperwork to get free money, but hey, that’s me!

Employer matching on your investment also creates a bit of forced saving for you. Every month or pay cheque you’ll be putting money aside, whether it is for short term or long term savings. You probably won’t even notice that those few extra dollars aren’t making it into your checking account.

With the current volatility of the stock markets and low rate of return on low risk investments, 100% return is as good as it gets. So I urge you to sign up for matching, whether is RRSP, stock purchases or any other program… and tell your colleagues to sign up too, while you’re at it!

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I only save a small amount every month, what should I invest in?

Only save a small amount of money… that’s ok!

First of all good for you for making investing a priority even if you are only able to save a small amount of money each month for investing. We all have to start somewhere and developing the discipline of investing early and understanding how it works is great!

As you know, I’m not a financial planner and even if I was, I wouldn’t be able to give you specific investment advice without understanding your broader financial picture and your goals.

Questions you should be able to answer about this investment should include:

What is the purpose of this investment? Short term, emergency fund, buy property, retirement etc.

When do you expect to need these funds?

What kind of risk are you willing to take on? (how much are you willing to lose in a worst case scenario)

Have you maxed out your tax-free savings account (TFSA)?

Depending on how you answer these questions, how you invest your funds will vary greatly.

You should speak to a financial advisor or financial planner to be able to determine what is the best investment for you. Make sure you find out the fees upfront, as fees can really eat into the upside of your investments. You can also use online investment management companies that typically have lower fees and can also help you meet your objectives, but make sure you do your research as not all online investment management companies are created equal.

Regardless of which way you decide to go, make sure you understand how your money is invested and what the risk is even if you are investing a small amount. Don’t ever let anyone make you feel obligated to invest in something that you are not comfortable with.

I advise you to keep setting aside money every month for your future and over time, do your best to increase the amount you are saving and investing! Down the road you will be grateful for all the efforts that you made.

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I’m thinking of going back to school, but finances are tight. Should I be investing in more education?

It is my opinion that in general, investing in yourself is the best investment you can make! I’m a huge advocate for continuing to better oneself…always! The question should I go back to school is one that many people ask themselves. I personally considered going back to school to do an MBA about six years into my career.

The first question to ask yourself is why do you want to go back to school? I was unhappy in my job and was looking for a change, which is why I started evaluating schools and wrote the GMAT. For me, going back to school wasn’t the right answer. I loved my career and making a directional or educational change would not have benefited me at that stage. Sometimes, when things aren’t quite right in our careers, we think going back to school is the answer.

If you decide that you want to go back to school, you have to consider what the extra education/ skill set / degree will do for your career. Will it help to further your career in the direction you’d like to go? Will it enable you to earn more money in the future?

If the answer at this point is YES, to should I go back to school you now have to consider the financial implications. if the answer is yes, to should I go back to school. How much will the program cost you? Are you able to do it part time or will you have to leave your job to be able to go back to school? Will you have other additional costs like childcare or transportation that you need to account for? How long will it take you to recover the cost of the program?

Also don’t forget that you can always apply for scholarships to help with the cost of your education. If the education is related to your current job you may be able to get some or all of the tuition covered by your current employer.

Don’t forget, there are many different types of education, and there are many ways to improve your skills that don’t all entail a multi-year program.

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